The short-term speculative market likes the Mexican peso. The net long speculative position at the IMM has risen sharply in recent weeks. The net long non-commercial position rose to 70.8k as of last Tuesday up more than 6-fold since late July. A number of investment houses have recommended long peso positions as a way to take advantage of the glo…

The dollar is finding little succor from the falling equity prices. The yen remins firm in the wake of the election and amid speculation of repatriation ahead of the end of the fiscal half year at the end of Sept, especially given the tax incentives (via the Japaense equivalent of the US Homeland Investment Act). Trading conditions appear a bit li…

Dollar Slips even as Stocks Tumble
Reviewed by magonomics
on
August 31, 2009
Rating: 5

Sweden's central bank, the Riksbank, meets on Thursday. It is the same day as the ECB meeting and is likely to be overshadowed by it. Yet there is something important happening in Sweden that is worth looking closer at. Riksbank Adopted Negative Deposit Rate in Early July Central banks in Europe place their key rate between a deposit rate, wha…

The Interesting Case of the Swedish Krona
Reviewed by magonomics
on
August 31, 2009
Rating: 5

In recent days, a number of prominent people have warned of the downside risks facing the U.S. dollar. Warren Buffet argued while aggressive U.S. monetary and fiscal policy response is necessary, Congress must bring spending back under control in a timely fashion or the ensuing inflation will undermine the value of the dollar. Joseph Stiglitz, the f…

Reports of the Dollar's Death Are Greatly Exaggerated
Reviewed by magonomics
on
August 28, 2009
Rating: 5

EPFR Global tracks flows into mutual funds. It reports that in the week through Wed Aug 26 investors put $168 mln into Asia x-Japan funds after the previous week recorded the largest outflow (~$810 mln). Data from the local stock exchanges suggest that foreign investors have been net sellers of Philippine shares this month. South Korea has been am…

Investment Flows: Where is the Money Going?
Reviewed by magonomics
on
August 28, 2009
Rating: 5

Official Chinese news is reporting that the State Council is studying curbs on industries that are plagued with over-capacity, including steel and cement. Separately, the Aluminum Corp of China, warned Chinese smelters, traders and warehouses hold as much as 600k metric tons of inventories because of excess production. The Shanghai Futures Exchang…

As we noted in the North American daily comment, we suspect the market has exaggerated the likelihood of Bank of Canada intervention and this is presenting a lower risk opportunity to buy the Canadian dollar. Meanwhile, a lot of good news has been priced into the Swedish krona, which has appreciated nearly 13% against the US dollar since early Jul…

Consider Long Canadian Dollar, Short Swedish Krona
Reviewed by magonomics
on
August 26, 2009
Rating: 5

Poland reported strong retail sales today in contrast to Hungarian retail sales which posted their 29th consecutive monthly decline and a drop in economic sentiment in the Czech Republic. The Polish zloty is outperforming in the region, but all the (region's) currencies are gaining against the dollar today. After taking good money out of the l…

The talk of the day is that Bernanke will be re-nominated by President Obama for a second term. It was hardly surprising. As of yesterday, www.intrade.com had a it the most likely outcome by a a 3 to 1 margin. The real surprise was that NY AFL-CIO leader Denis Hughes was named the chairman of the NY Fed's board for the remainder of the year. H…

We have suggested that the recent Sino-American SED talks may be an early indication both sides are backing off of their more bellicose rhetoric. Since Geithner's confirmation hearing, in which he cited Obama's campaign rhetoric and the manipulation of the yuan, the US appears to have backed away from at least public pressure on China to r…

Chinese Take An Important Step on Intellectual Property
Reviewed by magonomics
on
August 24, 2009
Rating: 5

Since Aug 10, the euro pulled back about 1.5% against the Swiss franc through last week low set on Friday near CHF1.5135. The fundamental backdrop has not changed. The Swiss National Bank remains committed to the quantitative easing strategy, which given the size of its domestic bond market, requires the purchases of foreign bonds and entails the …

The staffs of policy makers from around the world are preparing for the G20 meeting that will be held in Pittsburgh in a month’s time. Why should it be on your radar screen now? It is timely because it is in this run-up that agenda is shaped and outcome orchestrated.

The SNB's Jordan has been quoted on the news wires today. He seems content with current Swiss franc exchange rates. He claims as have other Swiss officials that the intervention has been to prevent currency appreciation, which may remind one of the guy in the city who sells whistles that purport to keep elephants away. When a boy informs the s…

Canada reported that foreign investors bought a net C$10.5 bln of Canadian securities in June. This brings the total net foreign purchases in Q2 to a little more than C$38 bln compared with about C$23.5 in Q1 and less than C$1 bln in Q4 08. Foreign investors were net sellers of Canadian asset (~C$7 bln) in Q3 08. June was the sixth consecutive mon…

Foreign Investors Continued to Buy Canadian Assets in June
Reviewed by magonomics
on
August 18, 2009
Rating: 5

Sterling extended its recovery from the recent slide that took its lowest level since July 17th yesterday against the dollar. It had already risen above yesterday's high near $1.64 by the time the unexpectedly firm CPI report was released which sent it near $1.65 (~$1.6479).

UK Inflation Not Really That Sterling Positive
Reviewed by magonomics
on
August 18, 2009
Rating: 5

Sterling was the market's darlings over the last five months and was the best performing G7 currency. Between March 10 and Aug 5, sterling appreciated by more than a fifth against the US dollar and by 10% against the euro. However, since the BOE unexpectedly extended its quantitative easing, sterling has been pounded. It is the worst performin…

Sterling is Really a Pound
Reviewed by magonomics
on
August 17, 2009
Rating: 5

With the recent stream of macro-economic news, leaving aside today's Empire State survey, has been disappointing that this has helped trigger a dramatic wave of profit-taking. Last week China reported exports are still falling and today it reported that direct investment inflows extend their decline into the tenth consecutive month. Japan'…

The bulk of the U.S. earnings season has past. While many companies missed their revenue numbers, they still achieved, or bettered expectations for earnings. This was accomplished through dramatic costs cuts, especially in labor. In explaining their quarterly results a number of companies cited the impact of foreign exchange developments. The impac…

The Dollar's Impact on U.S. Corporations
Reviewed by magonomics
on
August 14, 2009
Rating: 5

Many officials and private investors are concerned about the deterioration of the commercial real estate market. It is been widely discussed and on radar screens. What appears to have gone largely unnoticed though was the jump in secondary credit to depository institutions revealed Thursday with the Fed's weekly report on its balance sheet, cr…

Is there Another Shoe to Drop?
Reviewed by magonomics
on
August 14, 2009
Rating: 5

Chinese banks have signaled the intention to cut back on new loan issuance, but the PBOC has not changed its declaratory or operational policy. It is not imposing new and lower loan quotas. It appears to be using its moral suasion. This initially weighed on Chinese stocks. July-Aug is typically a slow month for loans in any event, but the resumpti…

As widely expected Norway's central bank left rates on hold at 1.25%, but reaffirmed a slight hawkish bias that saw the krone rally nearly 1% in a few minutes. Norges Bank said that it anticipates its key rates to be 0.75%-1.75% by year end. That would seem neutral, 50 bp on either side of the current target. However, it also added that it may…

The US dollar is getting hit as the market adjusts positions ahead of the FOMC meeting. It will not go unnoticed that US equities opened broadly higher and that this represents a continuation of the previous pattern that was called into question last Friday when the dollar rallied after the better than expected jobs data while stocks rallied. The …

The sharp rise in auto sales is widely understood to boost the July retail sales. The report will be published tomorrow. Excluding autos, retail sales are expected to eke out a small gain. However, there is another potential source of demand that many are probably overlooking. In late July, the federal minimum wage was increased by 10.7% to $6.55 …

U.S. Retail Sales Might Be Aided from Unexpected Source
Reviewed by magonomics
on
August 12, 2009
Rating: 5

There is much talk today, circulating NY dealing rooms, that the Bank of Canada is getting ready to intervene in the foreign exchange market. We are dubious are that the BOC would intervene unilaterally on the CAD/USD exchange rate. In fact, we cannot recall a single episode of BOC intervening on CAD/USD in recent years, if ever. Last week, when U…

Canadian Intervention Highly Doubtful
Reviewed by magonomics
on
August 12, 2009
Rating: 5

Last week's US employment report triggered a sharp shift in Fed expectations. The market was aggressively pricing in Fed tightening. We warned of the risk that the Fed's statement following this week's FOMC meeting would reaffirm, in some fashion, the commitment to keep rates low for an extended period. The market is already adjusting …

The Canadian dollar's losing streak has extended into its fourth session, the longest such streak since early Q1. The main driving force seems to be position adjusting. The Canadian dollar was the strongest of the major currencies last month, gaining almost 6.7% against the US dollar. This of course reflected buying of Canadian dollars and the…

Financials are the weakest sector in US equities today, losing a little more than 2.6%. In addition to simple profit-taking, some contacts are playing up the FASB board meeting Thursday. One of the issues reportedly on the agenda is to expand mark-to-market accounting requirements to a broader array of bank assets, including loans intended to be h…

The price of gold is off about 1% today, roughly matching the slide before the weekend. What is noteworthy about gold's heavier tone is that last Friday 16 European central banks agreed to limited their gold sales to about 400 metric tonnes a year for the next five years. This is 100 metric tonnes less than the current 5-year agreement that ex…

The Norwegian krone is the hardest hit of the major currencies today, losing 1.5% against the dollar and 1.2% against the sagging euro. The krone has fallen now for the third consecutive session. The ostensible trigger for today's drop was the unexpectedly soft inflation report that showed core inflation back to the central bank's target f…

The US dollar has enjoyed a firm tone in the North American morning, but once European markets closed for the day with the 11:00 EDT/15:00 GMT fix, the dollar has extended its gains. The next level of support for the euro is the lows set in late July near $1.40. Ahead of that is a trend line drawn off of the early and late July lows, which comes i…

Dollar Extends Gains As Europe Goes Home
Reviewed by magonomics
on
August 10, 2009
Rating: 5

The FOMC holds a two day meeting starting tomorrow. No one is expecting a change in the Fed funds target of 0-25 bp. Nor is there much expectation that the FOMC announces an extension of its Treasury purchases--though no one expected the BOE to increase its purchases by GBP50 bln, announced last week, either. If the Fed were to announce an increas…

What is the FOMC Going to Say ?
Reviewed by magonomics
on
August 10, 2009
Rating: 5

After initally being sold off on the better than expected jobs data, the dollar has rebounded smartly to new highs for the day, chopping up traders. There has been a shapr backing up of US interest rates and the Fed fudns futures has fully discounted a Q1 rate hike. Our weekly thematic piece that will be distributed shortly identifies three factor…

Today is a busy day: US jobs data is unambiguously a favorable economic development, China's banks, including the world's second largest bank announcing intentions to cut lending back by 70% in H2 from H1, and a sharp rising in interest rates and and extension of equity market gains, with the S&P 500 moving at least on an intra-day bas…

Another Macro Theme
Reviewed by magonomics
on
August 07, 2009
Rating: 5

We retain a favorable medium term outlook for the US dollar, its recent fall to new lows for the year against a broad swath of currencies. However, we are not prepared to call a dollar bottom now and issue a strategic buy recommendation. Here is a brief discussion of three factors than can help fine-tine the timing of a dollar bottom.

Three Things to Look for to Know When it is Time to Buy Dollars
Reviewed by magonomics
on
August 07, 2009
Rating: 5

Non-farm payrolls lost 247k jobs, a great deal lower than nearly every expected and the unemployment rate fell 0.1% to 9.4%. The manufacturing sector lost "only" 52k jobs, compared with a revised 131k loss in June. Hourly earnings rose 0.2% instead of 0.1% that was expected and a flat reading in June. The work week rose 0.1 hours the …

Worse than expected Canadian employment data pushed the Canadian dollar broadly lower and may be seen reinforcing the Finance Ministry's concerns repeated earlier this week that the Canadian dollar's strength was undermine the economy.

Canadian Employment Data Worse Than Expected
Reviewed by magonomics
on
August 07, 2009
Rating: 5

Germany's Economic Minister Guttenberg suggested that Europe's biggest economy might not have contracted in Q2. The market consensus is for a 0.3% quarterly contraction. The data is scheduled for release on Aug 13. The market is leaning in Guttenberg's direction but not until Q3. For the current quarter, the market consensus is for…

Growth Prospects in the G3
Reviewed by magonomics
on
August 06, 2009
Rating: 5

The dollar is trading firmly with the key events of the day out of the way. The big surprise of course is the BOE decision to extend its QE, helping send sterling sharply lower, and serving as a drag on the other major currencies. ECB did nothing and said nothing new. It reinforced expectations policy is on hold for some time. US weekly intial…

As part of the quarterly refunding announcement, the US Treasury indicated that is considering canceling the 20-year TIP and re-introducing the 30-year TIP. The decision will be announced in November and auctioned in January 2010. TIP issuance is likely to increase next year.

TIPS, Inflation, and the Dollar
Reviewed by magonomics
on
August 05, 2009
Rating: 5

The consolidative phase is threatening to turn into an outright correction as the the dollar firmed toward session highs on news that the service ISM fell to 46.4 from 47.0 and consensus expectations for a 48 print. New orders fell and the the jobs component fell to 41.5 from 43.4. Factory jobs data looks better. ADP had the smallest loss of mfg j…

Service ISM Disappoints, Dollar Firms, but Range-Bound
Reviewed by magonomics
on
August 05, 2009
Rating: 5

The ADP report showed a private sector jobs loss of 371k, not far statistically speaking from the loss of 350k the consensus was looking for. It follows on the heels of a softer Challenger report as well. There had been some risk of a stronger than expected number due to the distortions picked up by the weekly initial jobless claims data. Although…

In recent weeks we have recommended long Canadian dollar positions against the US dollar and the Mexican peso. Over the past month, the Canadian dollar has been among the best performing currencies, gaining 8.6% against the dollar and more than 7.5% against the Mexican peso. We are concerned that from a fundamental perspective, much of the good …

Economists and policy makers under-estimated the attractiveness of the cash-for-clunker scheme. The US was among the laggards in adopted such a program. It has been fairly successful where ever it has been implemented. Germany, for example, was among the first to adopt the scheme and auto sales rose by nearly a quarter year-over-year. Overall, sal…

Cash for Clunkers, Some Details
Reviewed by magonomics
on
August 04, 2009
Rating: 5

Personal income in June fell 1.3%, a little more than expected and completely offsets the revised 1.3% gain in May. Spending fared better, rising 0.3% after a revised 0.1% increase in May (originally 0.3%). The PCE core deflator was sopt on expectations, rising 0.2%, but the headline has fallen into a year-over-year decline. The May rate was re…

Both the manufacturing ISM and construction spending was stronger than expected in the the current environment greenshoots are greeting with dollar selling as participants boost their reflation/risk trades. July mfg ISM rose to 48.9 from 44.8 in June. New wires consensus was near 46.5. This is the best showing in 11 months. Of note, new orders cam…

The Economist recently published an update of their popular Big Mac measure of purchasing power parity. One of the key metrics behind our conviction in late '07 that the dollar was poised to rally was the fact that on PPP basis the dollar's bilateral exchange rates were stretched more than ever. The dollar's rise began against sterli…

Valuation In FX
Reviewed by Marc Chandler
on
August 03, 2009
Rating: 5

At the risk of exaggeration, there is only one story today and it is growth. The story began on Friday with the Q2 GDP showing a smaller contraction than most expected, and more importantly, the unexpectedly sharp decline in inventories, has even the likes of Alan Greenspan recognizing the risks of the strong bounce in the economy in this quarter…

Growth Optimism is the Story
Reviewed by Marc Chandler
on
August 03, 2009
Rating: 5